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Housing market poses biggest threat to economy, says Carney

Bank of England governor Mark Carney has warned that the housing market poses the biggest risk to the UK’s economy

Speaking to Sky News’ Murnaghan Show the former governor of the Bank of Canada said: ‘When we look at domestic risk, the biggest risk to financial stability and therefore to the durability of the expansion [of the economy]; those risks centre in the housing market.’

He said there are not enough homes being built in the UK and the shortage in new homes being constructed is driving up prices. Currently the UK is building an average of 123,000 new units per year – way below the levels believed to be required.

Comparing the UK to his home country of Canada, Carney said: ‘[There are] half as many people in Canada as in the UK, [but] twice as many houses are built in Canada every year than in UK.’

Carney suggested that the Bank of England had been asked to provide advice on changing the terms of the government’s Help to Buy scheme. The scheme set to run until April 2016, offers buyers up to 20 per cent of the cost of a new home below £600,000 through an interest-free equity loan.

He also said the Bank of England is ‘closely watching’ the rise in property prices and increases in high loan to value mortgages.

In response to Carney’s comments, shadow chancellor Ed Balls, said he was right to warn about the risks of a ‘lop-sided’ housing market and said it was now up to chancellor George Osborne to act on housing supply.

He said: ‘He should also reform Help to Buy by cutting the £600,000 limit and introduce the Help to Build scheme we have called for. The chancellor cannot wash his hands of what’s happening in the housing market.

‘Unless the government acts the danger is that the Bank of England will be forced to raise interest rates prematurely.’

Carney’s comments come as housebuilders called on London councils to release more land for housing in an attempt to ‘tackle the most serious social and economic threat currently facing the capital’.

The House Builders Federation has said that housebuilders are developing sites faster than they can acquire land.

Stewart Baseley, executive chairman of the Home Builders Federation (HBF) said: ‘The capital is now facing an acute and worsening housing crisis. If we are to provide the homes we need for London to prosper, politicians must urgently prioritise housing provision.

‘Land is key. Local, regional and national politicians have to start working together to develop policies that allow house building sites to come forward. Politicians need to identify and bring forward land quickly if builders are to build the homes London needs.’

The London Plan currently suggests 42,000 are needed each year until 2025, while Think tank and lobby group London Councils has warned that the capital needs to build an additional 800,000 homes by 2021.

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